2013 Inflation Rates Remain Fairly Low; Good News for Property Investors

InflationThe Reserve Bank of Australia’s target range of annual inflation normally runs 2% to 3%, but the Australian Bureau of Statistics (ABS) last month announced that annual inflation is currently at 1.2%, according to the ABS Consumer Price Index.

According to the ABS, “The Australian Consumer Price Index (CPI) is conceptually designed to provide a general measure of price inflation for all Australian households. In practice, the index is constrained to only measure the changes in prices faced by private households living in the six State and two Territory capital cities.”

In the first quarter of 2013, figures indicate there was a 0.4% increase over the previous quarter’s measure.

Annual inflation sits currently in the lower to middle range of the Reserve Bank’s target range for inflation. Through the Consumer Price Index, the RBA measures underlying inflation, or “core” inflation, by trimmed median, or weighted, mean measures, stripping more volatile measures like fuel costs and agricultural products. From March 2012 to March of this year, underlying measures topped out at 2.2% for the trimmed mean and the weighted mean at 2.6%. Headline inflation was recorded at 2.5%.

The CPI’s housing composition provides the greatest factor to the overall CPI result. In the overall housing component, these costs have increased over the growth: electricity (17.1%), property rates and charges (5.8%), gas and other household fuels (16.8%), and utilities (13.5%). Housing costs as a whole increased by 5.1%.

For several years, the trend has been that utility rates, like electricity and gas, have been sharply increasing, rather than the expected mortgage or rent rates. Property maintenance and repair costs have increased by 2.6% annually over the last ten years, ahead of new home purchases, various housing, and rents.

Data shows that growth in regular quarterly household bills has skyrocketed in the last decade, and each year, particular costs continue to grow significantly. Relative to other housing costs, rising costs associated with house purchases and rentals are stable, even above headline inflation.

In summary, in the Australian economy, calls for interest rate hikes should dissipate, and overall, inflation remains at low levels. As home value growth slowed in April, and as commodity prices fell and mining investment should be peaking throughout this year, interest rates may need to be cut further to stimulate the housing market.

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